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Steve Hefter's portfolios are designed for exactly the kind of days that followed the U.S. presidential election. Investors were hanging on every word from the president and congressional leaders, and markets were swinging with each mention of "fiscal compromise."

"It's not a financial analysis anymore," the Wells Fargo advisor says from his suburban Chicago office a week after the election. "What are politicians going to do? What's Greece going to do? What's Ahmadinejad going to do? These aren't financial calculations driving the market."

Hefter escapes the volatility with a mix of mutual funds that tend to shrug off global fears. A mix of preferred stock, municipal bonds, and long-short investing strategies, the funds provide "equity like-returns with less-than-equity-like risk," he says.

New Strategies: "You can have appreciably less risk and, as it turns out, appreciably more returns."
Callie Lipkin

Hefter, 58, has been on the prowl for innovations since graduating from Harvard Business School in 1983. A Morgan Stanley rotation program exposed him to niche experiences in the bond, option, and equity departments, and taught him he preferred a more holistic approach—the domain of a financial advisor. He spent 12 years as an advisor in Goldman Sachs' wealth-management business, followed by stints at Merrill Lynch and Morgan Stanley. He joined Wachovia Securities in 2007, a year before it was acquired by Wells Fargo.

After spending his Goldman years working in Chicago's Sears Tower, Hefter is far more, well, grounded these days. His office is on the first floor of a quiet complex in Deerfield, Ill., a half-hour north of Chicago. From there, his eight-person team manages money for 295 clients, with a typical account of $10 million. Hefter ranked No. 16 on Barron's 2012 list of Top 100 Advisors.

The biggest change since he began in the 1980s? A move away from the 60/40 equity/bond split and toward a new wave of institutional-type investments, Hefter says, largely in the form of mutual funds that offer retail investors new opportunities to protect wealth. "If you really look around, I think you can manage portfolios where you can have appreciably less risk and, as it turns out, appreciably more returns." Today he keeps 30% of his portfolio in mutual funds with long-short and global multi-asset strategies.

Another prime example is bank preferred stocks, which can yield 6% or more. (Banks are the biggest issuers of preferred stock.) The dividend is relatively safe, given banks' improved credit profile, and very attractive compared with treasuries.

With banks having made it through the credit crisis, the risk to their preferred issues have been dramatically reduced, Hefter contends. Preferreds soared once the government decided against any type of nationalization plan. "They weren't going to allow another bank to fail, and that argument is still true today," he adds.

Another 10% is devoted to tax-free municipal bonds, a particularly advantaged class "now that it's virtually certain that tax rates are going up," Hefter says. The muni allocation is split evenly between investment-grade and high-yield issues. Hefter uses the
Invesco High Yield Municipal
fund (ACTHX) for some of the muni exposure. The fund specializes in bonds from small, under-the-radar public entities that don't want to spend the money on a costly rating service. That adds to the risk but also the yield.

Hefter is also buying floating-rate corporate bonds—about 7.5% of his portfolio—bracing for the rise in interest rates. "We're going to have to inflate our way out of this," Hefter says. "There is no other way; we are not going to accept deflation, not with [Fed Chairman Ben]Bernanke."

Hefter keeps nearly a third of his portfolio in U.S. stocks, and he sees the continued outflows from equity funds as good for stocks in the long term. With investors on the sidelines, "think of all the money that is earning nothing," Hefter notes. "If we really were to get on a path that would lower the deficit and move us forward growth-wise, you could see a huge move up in the market."